This article was updated on 29 April to reflect the changes in interest rates for bank loans.
To apply for a BTO with your significant other is one of the biggest decisions you will make. But with a successful BTO application comes even more decisions that require your careful consideration.
Here are 6 decisions you need to make before buying a BTO flat.
#1 Should You Clear Your CPF OA?
Since August 2018, you are allowed to retain up to $20,000 in your CPF Ordinary Account (OA). Previously, it was a requirement to fully utilize your CPF OA funds to pay for the flat before taking up a HDB loan. Clearing your CPF OA can help to reduce the housing loan amount that you take up.
However, there are numerous pros of leaving money in your CPF OA:
- Buffer for rainy days – you will still have funds to pay for your HDB instalments through your CPF OA even during an unfortunate situation where you are unemployed
- Money in your CPF OA earns a risk-free 2.5% interest per annum
- Earn an additional 1% interest rate paid on your first $60,000 of your combined CPF balances (with up to $20,000 from your OA).
#2 HDB Loan Or Bank Loan?
This is one of the decisions you need to make (and indicate) during your first HDB appointment.
|HDB Loan||Bank Loan|
|Interest Rate||2.6% – Guaranteed interest rate.||2.2%-2.8% – Interest rates fluctuate and are almost never guaranteed.|
|Loan Tenure||Maximum 25 years, or up till the buyer is 65 years old (whichever is earlier).||Maximum 30 years.|
|Early Repayment Penalty||No penalty||About 1.5% of the remaining loan amount.
(Typically 3 years lock in period)
|Downpayment Required||10% (payable by CPF)||25% (at least 5% has to be in cash)|
|Eligibility Criteria||– At least one buyer must be a Singapore citizen.
– Have not taken 2 or more HDB loans before (i.e. max two HDB loans).
– Monthly household income less than $12,000.
– Must not have owned or disposed of any private residential property in the 30 months before the date of application for an HLE letter.
#3 Home Loan Duration
For HDB loans, HDB caps the loan tenure at 25 years, or up till the buyer is 65 years old, whichever is earlier. Since there is no early repayment penalty for a HDB loan, it makes sense to opt for the maximum loan tenure first. This gives you and your other half more flexibility and you can always opt to repay the loan earlier. However, there are also benefits of choosing a shorter home loan duration. The interest you pay in total will be less than a loan with a longer duration.
#4 Applying Under The Married Child Component Scheme (MCPS)
The MCPS encourages a married child to live close to their parents. Applying under the MCPS would increase your chances when you ballot for a flat.
To apply under the MCPS, your parents/married child must be living within 4km of the flat you are applying for. For example, the HDB block your parents reside in needs to be within 4km of the nearest block in the project you are applying for. This requirement was previously 2km for applications prior to the May 2018 BTO launch. Note that if your parents own more than one property, the property which they live in will be used for the proximity reference.
However, do note that you will be locking your parents in for the next 5 years as there is a 5-year Minimum Occupation Period (MOP). This means that after collecting the keys to your new flat, your parents would need to continue staying within 4km of your new flat. Are your parents aware of this and are they agreeable? This scheme would work well should your parents have no intention of moving in the next few years.
#5 Flat Size
3-room, 4-room or 5-room?
Which flat size works best for you and your partner? Here are a few things to consider when deciding on the flat size:
- Whether you plan to have children. If you and your partner have plans to start a family, more rooms would suit your needs better.
- Whether you can afford it. The more rooms, the more expensive the house is. For example, in last year’s Nov 2018 BTO, the selling price of a 5-room flat in Tampines starts from $472,000 while a 3-room flat starts from $240,000 – a difference of more than $200,000.
- Whether the estate you are looking at offers that flat size. Some BTO estates such as the up-and-coming Feb 2019 BTO launch in Kallang/Whampoa do not offer 5-room flats.
#6 Optional Component Scheme
The Optional Component Scheme (OCS) is an opt in scheme that aims to provide buyers with added convenience. Items offered under OCS include floor finishes as well as sanitary fittings and internal doors. You can take a look at the flooring that will be provided under the OCD at HDB Hub.
There are benefits to opting in for the OCS:
- Your house will be closer to move-in conditions during key collection.
- You don’t have to pay for these items in cash because the price of the OCS items will be added on to your flat price. On the other hand, having these items done during your renovation will see a higher renovation cost (which you will need to pay in cash).
However, if you are particular with the types of tiles used or if you have a theme for your house that is dependent on the overall look of your floor finishes, these “standard” floor finishes might not be for you.
You might not have considered some of these decisions even after your successful BTO application and getting a BTO queue number. Take some time to run through your options and discuss with your other half before coming to a decision.
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